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How banks pay interest on your savings account balance – Part 1

How many of us have actually checked our savings account to see how much interest gets credited into our account for the deposits we make? A lot of people might know the answer to this one.
Now let’s change the question to “How many of us know the way interest is calculated and credited into our account?” Not too many. The answer to this one will surprise many depositors and a bigger surprise is that crores of rupees are lost through millions of savings accounts in our country. The numbers as you will see are staggering.
There are an estimated 320 million savings accounts in the various commercial banks. As per the RBI Bulletin of May 2007, savings bank deposits were approximately Rs 4,30,000 crore (Rs 4,300 billion) at the end of March 2007. Most of the banks in the country pay interest to you on the minimum balance held between the 10th and 30th/31st of every month. We have picked samples from nationalized, private and foreign banks in the country to take a broad representation of most banks.
Now let’s suppose you have nil in your account as on April 10. On April 11th you deposit Rs 100,000 in your account. If you withdraw the funds on May 31st, there is no interest paid to you for the entire term of 51 days.
You may wonder why but the reason according to the bank’s calculation is that the minimum balance between April 10 (nil) and April 30 (Rs 100,000) is nil, so no interest is paid for April. Similarly between May 10 (Rs 100,000) and May 31st (nil), the minimum balance is nil and hence you earn no interest for May as well.